SYSTEMS DEVELOPMENT AND DOCUMENTATION TECHNIQUES

1. SYSTEMS DEVELOPMENT AND DOCUMENTATION TECHNIQUES Chapter 3

2. What is documentation? • Narratives • Flowcharts • Diagrams • Other written material

3. Importance of Documentation • SAS-94 requires that auditors understand the automated and manual procedures an entity uses. • SOX requires that publicly-traded corporations and their auditors document and test the company’s internal controls. • Auditing Standard No. 2 requires that the external auditor express an opinion on the client’s system of internal controls.

4. Data Flow Diagrams (DFDs) Definition – graphically depicts the logical flow of data Elements: • Data sources/destinations • Data flow lines • Processes • Data stores

5. Accounts Receivable Data Flow Diagrams 1.0 Process Payment 2.0 Update A/R Customer payment Customer Receivables Information Remittance data Credit Manager Deposit Bank

6. Context Diagram -- Payroll Governmentagencies Tax reports and payments Departments Time cards Employee paychecks Employees PayrollProcessingSystem Payroll check Bank Humanresources New employee form Payroll report Management Employee change form

7. Level 0 DFD Employees Departments Employee change form Employee checks Time cards New employee form Humanresources 1.0Update employee/payrollfile 2.0Payemployees Bank Payrollchecks Payroll disbursement data Payroll taxdisbursement voucher Employee/payroll file 5.0Updategeneralledger 3.0Preparereports 4.0Paytaxes Payroll report General ledger Governmentagencies Management Tax reports andcheck

8. Level 1 DFD for Process 2.0 Employees Departments Employee checks Time cards 2.1Processpayroll 2.2Prepare cashdisbursements Bank Payroll register Payrollchecks Payroll disbursement voucher Tax rates tables Employee/payrollfile

9. Data Flow Diagram Example

10. Data Flow Diagram Example • CAST Manual Module: Purchases As raw materials are needed for production and bottling, Production sends a purchase requisition to Purchasing where a prenumbered purchase order is completed in quadruplicate. The purchase order must be approved and signed by a purchasing supervisor. Copy 1 of the purchase order is sent to the supplier. Copy 2 of the purchase order is sent to Accounting. Copy 3 of the purchase order is sent to Receiving. Copy 4 of the purchase order and the purchase requisition are held temporarily in Purchasing. As goods are received from suppliers, they are inspected, counted and compared to copy 3 of the purchase order. A prenumbered receiving report is prepared in triplicate. Copy 3 of the receiving report and copy 3 of the purchase order are filed numerically. Copy 2 of the receiving report is sent to Purchasing where it is matched with copy 4 of the purchase order and the purchase requisition and filed numerically.

11. Flowcharts Definition – a tool used to depict a part of an information system in a clear, concise, and logical manner Types • Document flowchart - depicts flow of documents & information between areas of responsibility within an organization • Computer system flowchart – depicts how data are captured & input into the system, the processing performed on the data, and the information output by the AIS • Program flowchart – indicates the sequence of logical operations performed by the computer when executing a program

12. Flowchart Symbols: Input/Output Symbol Name Document; multiple copies Manual or online keying Display Input/output; Journal/ledger Transmittal tape; batch total Terminal or personal computer

13. Flowchart Symbols: Processing Symbol Name Computer processing Manual operation Auxiliary operation Offline keying operation;

14. Flowchart Symbols: Storage Symbol Name • Magnetic disk • Magnetic tape • Diskette • Online storage • Manual file • N – numeric • A – alphabetic • D – date

15. Flowchart Symbols: Miscellaneous Symbol Name Document or processing flow Data or information flow Communication link On-page connector Off-page connector A P2/1

16. Flowchart Symbols: Miscellaneous Symbol Name Terminal Decision Annotation

17. P2/2 P2/3 P2/1

18. Flowchart Example • CAST Manual Module: Purchases As raw materials are needed for production and bottling, Production sends a purchase requisition to Purchasing where a prenumbered purchase order is completed in quadruplicate. The purchase order must be approved and signed by a purchasing supervisor. Copy 1 of the purchase order is sent to the supplier. Copy 2 of the purchase order is sent to Accounting. Copy 3 of the purchase order is sent to Receiving. Copy 4 of the purchase order and the purchase requisition are held temporarily in Purchasing. As goods are received from suppliers, they are inspected, counted and compared to copy 3 of the purchase order. A prenumbered receiving report is prepared in triplicate. Copy 3 of the receiving report and copy 3 of the purchase order are filed numerically. Copy 2 of the receiving report is sent to Purchasing where it is matched with copy 4 of the purchase order and the purchase requisition and filed numerically.

19. One Final Note: Each page of each DFD or Flowchart MUST be numbered and have a proper heading which includes: • the company name • title of the diagram • date prepared • preparer’s name

20. System Flowcharts A system flowchart depicts the relationship among the inputs, processes, and outputs of an AIS. • The system flowchart begins by identifying the inputs to the system. • Each input is followed by a process, i.e., the steps performed on the data. • The process is followed by outputs—the resulting new information. • In other words, it’s the same basic input – process – output pattern that we saw in the document flowchart.

22. Program Flowcharts • Program flowcharts illustrate the sequence of logical operations performed by a computer in executing a program. • They also follow an input – process – output pattern.

24. Differences BetweenDFDs and Flowcharts • DFDs emphasize the flow of data and what is happening in a system, whereas a flowchart emphasizes the flow of documents or records containing data. • A DFD represents the logical flow of data, whereas a flowchart represents the physical flow of data.

25. Differences BetweenDFDs and Flowcharts • Flowcharts are used primarily to document existing systems and are concerned with the physical aspects of the input, processing and storage of the data. • DFDs, in contrast, are primarily used in the design of new systems and do not concern themselves with the physical devices used to process, store, and transform data.

26. Differences BetweenDFDs and Flowcharts • DFDs make use of only four symbols. • Flowcharts use many symbols and thus can show more detail.

27. Summary • We have: • Prepared two types of graphical forms of documentation: • Data flow diagrams • Flowcharts • Discussed the importance of these tools to accountants and when they are employed • Discussed the basic guidelines for creating data flow diagrams and flowcharts